Should I overpay on my mortgage? – Mortgage Broker Advice
When asked whether you should make a overpayment on your mortgages there are lots of key things to consider.
This is not for everyone yet if you got it right then overpaying on your mortgages could have several benefits:-
· Pay off the debt quicker – Making overpayments can also mean you pay off your mortgage much quicker. Overpay by enough and you could repay your mortgage more quickly.
· No interest is paid on the amount you overpay – Overpayments on your mortgage can save you money by reducing the size of your mortgage and the amount of interest you’ll pay overall, meaning you could save thousands in interest.
· The interest you could save could out way the return of any savings – this can be done by either making regular monthly payments over your normal amount or make a one off lump sum payment.
Not only are the above huge benefits and save money on your mortgage but the best mortgage deals tend to be available to those with more equity in their property.
So using overpayments to increase your equity whether that be as a lump sum or monthly overpayments then this can help you get better interest rates meaning you will have a overall mortgage rate and deal.
Things to consider before making an overpayment to pay off your mortgage
Overpaying without penalty
It is very important to check out your current mortgage deal and mortgage balance before making any lump sum overpayments or any monthly overpayment to pay off your mortgage. Check out our guide on different mortgage types if you are unsure!
If you are currently in a fixed mortgage deal, then it could cost you thousands to make a lump sum overpayments. The majority of lender’s will allow overpayments up to 10% of your mortgage balance per year without any early repayment charges.
If you are on the standard variable rate or a tracker mortgage, then you can normally overpay as much as you like without incurring any additional costs or early repayment fees.
You must be careful when making overpayments on your mortgage and its usually advised to speak to your lender before doing so to avoid any fees.
Whether you have a repayment mortgage or interest only it could still be a good idea to make a overpayment.
Do you have any other debts?
It’s important that you clear the most expensive debts first, therefore if you have any expensive debts with other providers it could be worth using your savings and clearing these first before making any lump sum overpayments or any additional monthly payment to your mortgage.
Lump Sum Emergency Funding
It is always sensible to have a cash emergency fund in the bank should the worst happen.
Overpaying the mortgage would mean your savings is gone and tied up within the property.
So if you did need any additional ‘rainy’ day funding and you had used all of your savings to make a lump sum overpayment then this could put you in a tricky position.
So make sure you are still left with the emergency funding in your savings before tying all of the money up in the property and leaving you without any additional savings.
Frequently Asked questions – Mortgage overpayment
Overpaying your mortgage – how to do it?
Assuming overpaying on your mortgage is still the best suited option for you then the quickest and easiest way to do so is by calling your existing mortgage lender.
They will be able to advise if you are allowed and make sure the overpayment is being processed correctly and in the most appropriate way.
When making a overpayment you will often be offered two options:-
1) Reduce the monthly payments
2) Reduce the overall mortgage term but keep the monthly mortgage payments the same
Does mortgage overpayments reduce monthly payments?
To benefit from the biggest interest saving then the overpayment should be used to reduce the mortgage term as when you only reduce the monthly payment it means you are paying slightly early therefore only benefiting from a small interest saving.
Another way you can overpay rather than a lump sum is by setting up a new payee via your online banking or even through a standing order to your mortgage account.
Most lenders will allow you to make regular payments via your online banking making it nice and simple to pay the additional mortgage payment on a monthly basis.
Other payments such as lump sum overpayments can also be done via your online banking.
Overpaying – this could save you how much?
It is very easy to check how much you can save by referring to a overpayment calculator.
You can do this by entering the monthly or lump sum overpayment you want to make and it will show you how much quicker you could finish paying off your mortgage and how much interest you could save.
So, should you overpay your mortgage?
It’s important to know that this all depends on you and your personal circumstances as to whether its the right thing to overpay on your mortgages.
The key to making this decision is to compare overpaying against potential interest rate gains on your savings, do you have any other debts that are expensive and need clearing and do you still have ample savings for that rainy day fund.
Most importantly make sure you do what is right for you.
If you are unsure about what is possible, contact us for further guidance & to compare mortgages.
Get in touch with AS Mortgages
Now that you know these terms, you are equipped with the basic knowledge to understand the mortgage world. If you have any questions about mortgages and would like to apply for one, contact us today.
